Contents Chairman’s Letter………………………………………………………………………………………………….pag. 2 Strategy, Governance and Engagement………………………………………………………………. “ 4 United Nations Goals and Issues………………………………………………………………………… “ 36 Human Rights Implementation (principles n° 1 and 2)………………………………………… “ 46 Labour Principles Implementation (principles n° 3, 4, 5 and 6)………………………..…… “ 76 Environmental Stewardship Implementation (principles n° 7, 8 and 9)…………………… “ 105 Anti-Corruption Implementation (principle n° 10)………………………………………………...... “ 132 Value Chain Implementation…………………………………………………………………………………. “ 148 Telecom Italia Spa - Independent Report on the Limited Assurance Engagement of The Sustainability Report…………………………………………………………………………………. ” 156 Chairman’s Letter1 While the economic scenario remains contradictory, experiencing a succession of rises and falls, one phenomenon continues unabated: the spread of communication technology. The International Telecommunication Union estimates that 90% of the world’s population is now within the range of a mobile telephone network, with over 5 billion active lines joining the 1.2 billion fixed lines. There are now over two billion Internet users populating the Web (almost 58% of them in emerging countries), gradually evolving from simple users of communication tools into citizens of a digital society that uses the Web to work, come together, circulate ideas and projects, create companies, produce culture, discuss politics, values and religious beliefs. These technologies are shaping new lifestyles and relationships and reorganizing economies wounded by the recession. In extreme but not rare cases, these technologies provide the momentum and support for people to demand freedom and reform, as the experiences of the past few months have demonstrated in North Africa and the Middle East. With its networks, products and technological solutions, Telecom Italia is fully involved in this global process aimed at building a digital economy and society, which form the basis for the greater prosperity of current and future generations. There are therefore two sides to our commitment to sustainable development. As an industrial company, we are committed to conducting our business in an ethical way, which means that our responsibility to remain competitive is part and parcel of our responsibility towards stakeholders. This is what we have clearly stated in our Code of Ethics and by signing up to the UN Global Compact, in which we play an active part, recording the progress we are making in applying its principles and promoting the activities of the Italian network. Like the other main players in the world of telecommunication, we are also committed to achieving a wider dissemination of digital technologies, in order to serve the needs of people in their private and working lives, to support corporate development and innovation, to increase the efficiency and quality of public services and, last but not least, to ensure greater respect for the environment and a more effective fight against climate change. In both these respects, we believe that the company has made enormous progress in recent years, as in fact has been recognized by the inclusion of Telecom Italia in all the main international sustainability indexes, including its seventh successive inclusion in the DJSI World and the DJSI Europe indexes. As is once again demonstrated by the pages of this Report, we showed our commitment to sustainability in many different fields in 2010. These included continued investment in the network infrastructure, aimed at ensuring the greatest possible expansion of broadband coverage (which currently covers 97% of our fixed lines in Italy and almost 84% of mobile lines), while ensuring economic feasibility and often collaborating closely with the Italian regions. Smart Services are an increasingly important part of this program. They include the Smart Town platform, which can be considered as the management nucleus of a digital city (administering its energy requirements, providing local surveillance and allowing communication with citizens), and Smart Building, in which ICT applications integrate with new materials, considerably improving energy consumption, comfort and security. Many local authorities and companies have now adopted these technological tools. Alongside these there are home automation solutions designed, among other things, to optimise the use of household appliances (Green@Home). We have developed forms of cloud computing that allow small and medium sized companies to access applications and data remotely, cutting the cost of technological infrastructure as well as energy use and emissions (Ospit@Virtuale). A contribution to a “greener” economy will undoubtedly be made by Biblet Store, Italy’s first digital bookshop, and by the gradual spread of e-readers and electronic publishing. 1 Please, see the following web site: http://www.telecomitalia.com/content/dam/telecomitalia/en/archive/documents/sustainability/sustainability_reports/2010/bilancio- sostenibilita-TI-2010-eng.pdf Another essential dimension of people’s quality of life on which we are working is health, and more generally the fight against difficulty and alienation. We are working with the managers of the Italian national health system to digitize managerial and clinical processes, in order to improve their efficiency and guarantee their sustainability to deal with the burdens associated with an ageing population and the imperative of controlling public spending. We are developing original solutions in the field of home telemedicine and telecare for the chronically ill (MyDoctor@Home). We are expanding the project to allow children in long-term care, in the oncology and haematology departments of Italy’s leading paediatric hospitals, to remain in contact with their families, schools and society in general. One of the main initiatives of the Telecom Italia Foundation is the Dyslexia Program aimed at fighting this disorder in Italian schools, benefiting from the valuable contribution that new technologies can make in this field. We are also continuing to provide training on the use of digital tools so that everyone, without exception, can benefit from them as much as possible. We therefore have ongoing computer literacy programs for older generations, involving tens of thousands of people every year. A tour around schools and Italian town squares has also led to the further consolidation of our project to train children to make an informed and responsible use of the Internet and new media (Safe Browsing), which plans to involve at least one hundred thousand young students, teachers and adults. Environmental sustainability and social sustainability are challenges that we have met at home as well, within the Group itself. With regard to the fight against climate change, in spite of the significant progress already made, in 2010 Telecom Italia used less energy for heating and travel and less electricity (-3.4%) and less paper, and produced fewer CO2 emissions (-5.7%). Our eco-efficiency indicator (measured in bits transmitted per joule) improved further by 29%, a considerable increase that is added to the ones achieved over the previous six years. Of course the background to all this is the day-to-day work being done to modernize our technology, rationalize the use of resources, renew the vehicle fleet and build awareness. However, our most intensive work last year was in the social sphere, where we had to reconcile the reasons for competitiveness with the reasons for sustainability. The imperative of restructuring and relaunching Telecom Italia required us to pursue a business plan that provided for a reduction in the number of people employed in Italy. We dealt with this change by trying to reduce the repercussions on our people as much as possible. Open and constructive dialogue with trade unions and the Government identified avenues - including recourse to mobility and the more extensive application of solidarity contracts in Italy - aimed at responding to the Company’s efficiency needs and guaranteeing that workers are respected and protected. At the same time, we launched extensive professional retraining programs to adapt today’s skills to the professional profiles of tomorrow. And as a demonstration of how much we believe in the broad cultural development of our people, we offered them the opportunity to combine their company training with education unrelated to their job, attending free university courses online, the first project of its kind in Italy. The success of this program has been truly remarkable. The same is true of the employee’s share ownership plan, to which 16% of potential subscribers signed up, compared to a European average in big companies of less than 5%. Financial participation is also an important factor of cohesion, mutual trust and sharing the commitment to relaunching competitiveness. It is with these people, with its massive store of technological capabilities, plus a now well established financial recovery process that is freeing up resources for investment in growth, that Telecom Italia is in a position to strengthen its contribution to the establishment of a digital society and economy with greater opportunities for development, more inclusive and respectful of the environment. Gabriele Galateri di Genola Chairman 1) Strategy, Governance and Engagement Criterion 1: The COP describes C-suite and Board level discussion of strategic aspects of Global Compact implementation. Criterion 2: The COP describes effective decision-making